I put this on the Tax Strategies board, but I think I might get some advice here too...Hi everyone. I have a slightly complicated situation and I'd like a little help.In 1996, when I turned 21, I received $2000 in a tradtional IRA as a gift from my father. I did not contribute anything for the next 3 years but I invested some of the money within the IRA. Last year (March 1999) I converted the IRA to a Roth IRA. There was about $3000 in the account at the time. Now the same Roth IRA is worth about $5000. My question is: Because of the conversion I'm sure I have to pay some taxes, but since the original $2000 was a gift, how much do I have to pay taxes on?Any advice or pointer to where I could find help would be much appreciated.Thanks!Rebecca
Greetings, Rebecca, and welcome. You asked:<<My question is: Because of the conversion I'm sure I have to pay some taxes, but since the original $2000 was a gift, how much do I have to pay taxes on?>>Well, if you deducted that original contribution when the gift was made, then the whole $3k you converted is taxable. OTOH, if you called that a nondeductible contribution and filed a Form 8606 with your income taxes that year, then the original $2K will be free of tax and you will only pay taxes on $1k of the amount converted.When your dad made that gift you were required to show the contribution on your income tax return that year. So the taxes now depend on how you showed it, as a deductible or as a nondeductible IRA contribution.Regards..Pixy
Best Of |
Favorites & Replies |
Start a New Board |
My Fool |
BATS data provided in real-time. NYSE, NASDAQ and NYSEMKT data delayed 15 minutes.
Real-Time prices provided by BATS. Market data provided by Interactive Data.
Company fundamental data provided by Morningstar. Earnings Estimates, Analyst Ra